What loan structure is right for your strategy?
Paul: Good day, guys. It’s Paul Glossop from Pure Property Investments. Today we’re joined by Aaron Christie-David. Aaron Christie-David is a mortgage broker who has a large amount of experience in investment property loan structures. What we’d really like to cover today in this educational series is two points. One is understanding the difference between interest only versus principle and interest, and where the pitfalls and benefits are there. And also loan structure when it comes to either fixing or staying variable. So, Aaron if I throw it to you with you talking about those aspects here, if you could explain to the viewers a little bit more about what the benefits and potentially pitfalls are in those in those two components. Aaron: Sure, thanks Paul. A common question I get is what’s the difference between principle and interest versus interest only. And I’d say if you want your own home, that’s your own unoccupied property, principle interest is the way to go, with the goal of paying down the debt as fast as possible, which would be [Inaudible 00:00:56] payments, using the benefits of an offset account as well. Where as if you have an investment property and cash flow is critical for you, then I’d suggest interest only. The reason why, I’ll give you an example. On an average $400,000 home loan, at 4.5% the difference between paying on it versus interest only is about $500. And to a savvy investor cash is king, so therefor there’s a slight difference in your monthly payments there. To your point about fixed versus variable the first question I ask anyone is…say I wanted a three-year fixed rate well I say, “What’s your three-year plan?” And if you don’t really have one, then what’s the goal for a three-year fixed for example. So one, do you have a plan during that time because if you choose to sell it then you’re up for break cost which is always important to remember. Fixed cost do provide a security, but if rates do come down, then you’ve kind of lost out there a little bit as well. So I’d say is stay variable until you have very clear goal as to where you want it fixed. And if rates are sharp enough, then I’d say lock it in. Paul: That’s very savvy advice, and I think from that component really there’s a couple things that resonate very clearly with me is, if you don’t have a goal then fixing doesn’t really achieve much, other than potentially put you in the position that you’re going to have to pay pretty large break fee cause, and I’ve seen it happen time and time again, for investors saying they want to fix in just because they see a sharp rate. But ultimately if it means that part of that is going to be that they need to either a, refinance or b, sell that property. They don’t factor in what that’s actually going to cost them to move that property on and change it from a bank. Just cause you’re selling a property doesn’t mean they’re going to waive any fees from you, unfortunately. So, look Guys I hope you enjoyed those little snippets and got something from that. Again, if you’d like to contact Aaron or myself I’ll have more details at the bottom of the screen and hope to see you soon.